We investigate the effects of arbitrageurs' behavioral biases on cross-sectional equity returns. We find evidence that profits of equity market neutral hedge portfolios are positively affected by overconfidence, the effects of which are not subsequently reversed. Further we discover that signals...

Slow-moving capital cannot fully explain the 2005 and 2008 arbitrage crashes in theconvertible bond market. Faced with depressed convertible bond prices implying negative option values, some investors continued to buy strictly dominated straight bonds from the same issuers. This finding suggests...

I study how arbitrage affects liquidity by analyzing several billion trades in the AmericanDepositary Receipt (ADR) market from 2001 to 2016. Price deviations persist, on average, for 12 minutes, and mainly arise because of price pressure. Impulse response functions estimated at 1-minute...

Many investors purchase stock but are reluctant or unable to sell short. Combining this arbitrage asymmetry with the arbitrage risk represented by idiosyncratic volatility (IVOL) explains the negative relation between IVOL and average return. The IVOL-return relation is negative among overpriced...

Using a sample of Credit Default Swap (CDS) prices and corresponding reference corporate bond yield spreads for the period 6/2008 to 9/2009, we show that funding-liquidity (shadow cost of capital for arbitrageurs) as well as asset specific liquidity (determinants of margin requirements) explain...

The real contributions of the MM Proposition are its central assumptions of perfect capital markets and the associated arbitrage argument. In this text, we review the perfect market assumptions and no-arbitrage principle. Then, to explain the evolution of the understanding of arbitrage from a...

Dividend reinvestment plans (DRIPs) with discount offer shareholders the choice between receiving cash dividends or additional shares at a discount. We provide evidence on DRIP arbitrage where DRIP arbitrageurs extract the DRIP discount through short-term equity borrowing. We show the relation...

The purpose of this paper is to study the Stochastic Volatility Inspired model (SVI) as implied volatility model: we study the analytic part of the SVI with the arbitrage conditions, we establish the initial guess and the parameter's boundaries. Until recently it was not possible to find...

This study investigates whether banks and insurance corporations perform regulatory arbitrage by buying bonds with inflated credit ratings. We argue that credit rating based capital requirements incentivize banks and insurance corporations to hold more bonds with inflated credit ratings. We...